Industries | The Big Take

The Airline Rewards Game Is Getting Tougher to Win

Once-simple programs have become convoluted shadow currencies for carriers like Delta, American and United, leaving loyal flyers working harder to land deals.

By Aaron Gordon Allyson Versprille Mary Schlangenstein Armand Emamdjomeh December 20, 2024

Airline rewards programs were once fairly straightforward. Carriers doled out perks like lounge access, cabin upgrades and even free flights to tighten bonds with customers who collected points from their journeys. Frequent flyers enjoyed the elevated status that came with sticking to one airline, while savvy users could scour awards charts to find deals that made bucket-list trips to Europe or Hawaii more affordable.

These days, it’s not so simple. Programs designed to encourage loyalty have gradually morphed into complex financial ecosystems – especially in the US, where airlines collect billions of dollars in revenue per year from them. Major carriers like Delta Air Lines, American Airlines and United Airlines now control what amounts to their own virtual currencies, selling points to credit-card issuers at lucrative built-in margins. Some loyalty programs are even worth more than the market value of the airlines themselves.

Two big changes to frequent flyer programs of the past have underpinned this transformation.

First, airlines overhauled how points are awarded. Customers today earn rewards based on dollars spent rather than how far they fly. Some three-quarters of airline points issued by major US carriers now come from credit-card spending, meaning that every swipe at the grocery store can theoretically get you closer to a free trip. At the same time, actually getting on a plane often earns less than before. While the change has widened the consumer base, it’s frustrated many people who remember the old system.

Next, airlines altered how points are redeemed. One by one, major carriers abandoned the awards charts that had helped loyalty members know how many points they needed to put that dream vacation within reach. Instead, airlines moved to a “dynamic” pricing model that varies the value of points flight-to-flight and even day-to-day, based on real-time demand and availability.

Such changes have raised alarm bells among lawmakers and regulators. “More and more, the complexity and even instability of the program is something that’s disadvantaging the passenger,” Transportation Secretary Pete Buttigieg said in an interview with Bloomberg News.

In September, his agency launched a probe into the rewards programs of the four largest US air carriers — Delta, American, United and Southwest Airlines — seeking to find out more about how earned points may have been devalued over time and how dynamic pricing can make it harder for customers to predict how far their points will go.

Consider Delta’s SkyMiles program, which has often been a trendsetter for the industry:

Airlines say the changes they’ve made have been positive for loyalty members, providing them with more flexibility, for example, in spending their points than in earlier years when popular dates and routes were blacked out.

And flights have become more crowded over the past two decades, making changes like the move to dynamic pricing necessary, said Scott Chandler, senior vice president of revenue management and loyalty for American.

With more seats filled by cash-paying customers, “only allowing redemptions or upgrades when there were empty seats had to change,” he said.

But consumer advocates warn that the changes have made airline loyalty programs unfair to customers, who often find they are earning points that are worth less than they thought. And new algorithmic tools make it more difficult for rewards members to know the value of points at all.

“Airlines are asking consumers to make a choice and yet they don’t even know what it is that they’re going to be getting,” said William McGee, a senior fellow for aviation and travel at the American Economic Liberties Project.

Buttigieg said he wasn’t sure there would be time to publish any findings of the Transportation Department’s investigation before President-elect Donald Trump and his team take office on Jan. 20. But he said he hoped the new administration, which is expected to bring a lighter regulatory touch, would keep the probe going.

“It shouldn’t be a secret what the value is of something that you’re buying or otherwise incurring a cost to obtain,” he said.

To better understand what today’s loyalty programs are actually offering flyers, Bloomberg News searched more than 6,000 flights across 22 domestic and international routes for the three largest US airlines, Delta, American and United, and analyzed the cost for each in dollars versus points.

The results show that each airline assigns a similar average value to reward points today — around 1.1 cent per mile for most economy class tickets, as well as luxury classes on domestic routes — but Delta has done more than any other major carrier to match the point prices of tickets to the dollar price:

While the averages are similar, American and United both still offer more variation in their price-to-points ratios on domestic economy flights, according to Bloomberg News’ analysis. United has even maintained a version of the old tiered rewards system for some flights as it has phased in dynamic pricing. That means both airlines still offer some rewards ticket “deals,” where buying a flight with points is cheaper than paying cash.

For many Delta economy routes, the move to dynamic pricing appears to have eliminated the possibility of such deals. Yi Gao, an associate professor of aviation management at Purdue University, noted that the airline’s tight points-to-dollars ratio now resembles a cashback program, but one that is not particularly favorable for most consumers. Many regular cashback credit cards offer higher rates and more flexibility, he said.

To the extent airline points are now just glorified cashback rewards, “you don’t have to be loyal,” Gao said. “You can shop around.”

Customers like Larry Cohen, a recently retired veterinarian who maintains status on both Delta’s SkyMiles and American AAdvantage programs, are taking note. “The points are worth less and the availability is less,’’ said the 67-year-old from Westchester County, New York. “At some point I’ll just go to a cash-back card’’ for travel, and choose flights based on price.

Though the other airlines haven’t gone as far, Gao suggested it may be a matter of time before they coalesce around Delta’s model. “Delta normally would do things first,” he said, and the others would follow. “That’s the trend.”

For many international long-haul routes, especially in luxury classes where the cost of a seat in dollars can run into the five figures, Bloomberg News’ analysis of sample flights found that even Delta appears to have retained the old tiered rewards system — possibly because a one-cent-per-point ratio would translate to a ticket that required more than a million points.

For people who regularly fly in premium classes on the company dime, or those able to put six figures of company expenses every year on a personal card, that means dynamic pricing hasn’t drastically altered what they can get out of airline loyalty programs. But for the millions of newcomers trying to rack up free flights through grocery and Amazon purchases, the analysis implies the rewards game has gotten tougher to win.

Today’s airline rewards programs are essentially a “black box,” said Erin Witte, director of consumer protection for the Consumer Federation of America. “What we don’t see is all of the data that American Airlines, that Delta Air Lines, has about the exact financial impact on consumers.”

The Profits Behind the Shift

The shift in focus from flyers to swipers has been profitable for airline loyalty programs.

Since 2017, American and Delta have more than doubled annual revenue from selling points to credit card issuers and other partners, with most of that growth coming since 2020, according to their annual company reports. That’s when people hemmed in by the pandemic weren’t flying much but were spending more on their credit cards. Cash-starved airlines saw the opportunity to steady their balance sheets by issuing securities backed by loyalty programs.

While United doesn’t break out revenue from its rewards program, the airline summed up the favorable math behind the shift in a 2020 investor presentation. United said it makes a 50% profit margin on points sold to its credit-card partners compared to about 20% for points awarded to flyers.

The total number of rewards points in circulation has almost certainly ballooned under this new system, though airlines stopped reporting exact numbers a decade ago.

Under the old model for redeeming points, which involved fixed award charts, this would be a problem for airlines. Back then, carriers had to manage the number of points and award seats in circulation using travel tiers and blackout dates, a possibility because planes were less full than they are today.

But with dynamic pricing, airlines have the ability to adjust the value of miles based on real-time demand and availability, allowing them to release more reward seats at prices that ensure profitability. Airlines can now easily prevent too many tickets from being booked at low points rates, ensuring that reward seats don’t compete with cash fares.

In 2020 Delta touted this power to investors, noting that dynamic pricing allows the airline “to control redemption cost while maintaining the value proposition for members and co-brand cardholders.”

Today, most airlines lean on a separate but related system, called status, to reward frequent flyers in ways the points system no longer does. These status tiers provide extra perks like free lounge access, upgrades to premium classes, and other fringe benefits, but they too have been subject to moving goalposts and increasing complexity. Airlines also introduced basic economy fares offering barebones service, and charging extra for previously included items such as some seat assignments, but those fees are often waived for people who hold status or a co-branded credit card.

Signing up for credit cards has become increasingly crucial to both programs.

Flight attendants on many airlines even get paid bonuses for each new signup. At a government hearing in May, Sara Nelson, international president of the Association of Flight Attendants-CWA, said about 80% of the flight attendants the union represents are required to market credit cards, with some making as much as $15,000 extra per year through related incentives.

In response to Bloomberg’s findings, airline representatives defended the value of their rewards programs. American said it has simplified the AAdvantage program in recent years and offers an awards chart with starting prices for rewards flights. The company says its points are worth more than they were before the pandemic.

Delta said it’s made SkyMiles more valuable by adding ways to earn and redeem points, such as for film screenings and spa getaways. The company said Bloomberg’s analysis didn’t factor in rewards-member benefits such as flash sales on airline tickets and discounts to Delta credit-card holders. Some one-way award flights can cost as little as 4,500 miles plus taxes, it said.

United said that since it moved to a new structure in 2017, about half of the airline’s customers have redeemed award travel in domestic economy for fewer points than its fixed award chart offered. The company also said it eliminated blackout dates, stopped charging fees to redeem miles, and dropped expiration dates.

“These voluntary programs are extremely popular, and carriers compete aggressively on these programs to reward their most loyal customers,” said industry group Airlines for America.

A New Regulatory Future

Ultimately, any move to increase transparency or otherwise rein in airlines’ rewards-program practices will be up to the incoming Trump administration and Republican-controlled Congress.

Trump has said he’ll nominate former US Representative Sean Duffy to lead the Transportation Department. Duffy has been critical of Buttigieg’s oversight moves, and as a lobbyist he represented the Partnership for Open Skies, which included the Big Three airlines.

Attempts to reach Duffy weren’t successful, and Trump’s transition team didn’t respond to requests for comment on its stance toward the airline rewards probe.

In general, industry executives have said they welcome the return of the former president, who launched the short-lived Trump Shuttle airline in the late 1980s. In a Bloomberg TV interview last month, Delta Chief Executive Officer Ed Bastian said airlines had been frustrated by “regulatory overreach”’ under the administration of President Joe Biden. Trump, he said, understands the aviation business “quite well” and was supportive during the Covid-19 pandemic.

“We hope there’s a new sentiment that’s pro-employee, pro-consumer, pro-business and a good balance between the three,” Bastian said.

In Congress, however, there’s been bipartisan scrutiny of both credit cards and airline rewards. Senators Dick Durbin, a Democrat from Illinois, and Roger Marshall, a Republican from Kansas, have proposed legislation that would reduce credit card transaction fees – a move airlines say would kill off their rewards programs. Credit card companies including JPMorgan Chase & Co. and Citigroup Inc. have also opposed the changes.

The duo has also leaned on the DOT and the Consumer Financial Protection Bureau to increase oversight of airline rewards programs, raising specific concerns about airlines’ ability to change the terms without notifying customers, as well as the high price of points top-ups purchased directly from airlines – which can cost three times more than they’re worth when redeemed. This month, the CFPB said some credit-card issuers may even be breaking the law by deflating the value of points already earned.

“Airlines are taking advantage of their customers by offering grandiose rewards, only to change the terms and conditions without consumers’ knowledge,” Durbin said. He vowed to press the Trump administration to continue the loyalty program probe, while Marshall, at a Dec. 4 hearing, called out the “incestuous relationship’’ between the largest airlines and credit card companies.

Buttigieg, for his part, will be watching with more than a passing interest. He uses the programs himself, and said he has seen first-hand how they’ve changed. And once he leaves office, the secretary’s future plans include travel.

“Right now, Chasten and I are thinking about a trip we might take after my time in this job ends,’’ Buttigieg said, referring to his husband. “Like everybody else, we’re on the website picking through options.”